WASHINGTON - A Congressional panel is expected to approve legislation on Wednesday that would curb high credit card fees and penalties assessed by many banks that have benefited from the federal government's financial bailout program.
The pro-consumer bill, which would mean sweeping changes for banks that issue cards, is an important test of the political will of Democrats who are pushing for U.S. financial regulation reform.
The bill-writing session by the House Financial Services Committee takes place one day before top executives of big banks and credit card companies meet with President Barack Obama, who campaigned for credit card reforms.
Executives from Bank of America Corp, American Express Co, Citigroup Inc, Wells Fargo & Co, JPMorgan Chase & Co, Capital One Financial Corp, Visa Inc and MasterCard Inc will be among 14 credit card companies expected to attend the Thursday meeting at the White House.
It's a new era in Washington, said Rep. Carolyn Maloney, a New York Democrat and chief sponsor of the House bill. It's taken three years of hard work, but I'm delighted that we're on the brink of real protections for consumers.
Her proposed legislation would halt credit cards from imposing arbitrary rate increases and penalties and certain billing practices on balances with different rates. It is expected to win approval by the committee, and later by the full House.
But it remains unclear whether Democrats in the Senate can muster the 60 votes needed in that chamber to advance controversial legislation amid stiff opposition from the banking industry. The Senate's version of a credit card reform bill includes tougher language.
We believe the odds are against significant new credit card legislation, financial analyst Jaret Seiberg with Concept Capital said.
Banks say the legislation would hurt their fee income at a time when they are trying to climb out of a financial hole stemming from the housing boom.
LATE PAYMENTS RISING
U.S. banks that issue credit cards have received more than $120 billion in taxpayer funds since October, money the government has asked them to use to expand lending.
But with U.S. credit card defaults at record highs, lenders are trying to protect themselves by tightening credit limits and closing accounts, actions that have infuriated lawmakers, consumers, and even triggered a New York state attorney general inquiry.
U.S. lawmakers have expressed anger that the same banks such as Bank of America, Citi and Chase with big credit card operations, charge excessive interest rates and fees while getting U.S. government bailout from the taxpayers who use these credit cards.
Amid a severe global financial crisis and a deep recession, U.S. credit card delinquencies are climbing.
According to the American Bankers Association, the late payment rate rose to 4.52 percent in the fourth quarter from 4.20 percent in the third quarter.
Bankers say the proposed restrictions would wreak havoc with their risk pricing of card holders and, ultimately, reduce the amount of available credit and make it more expensive.
Maloney initially wanted to force credit card companies to adopt the stricter terms within 90 days the bill became law, but a House subcommittee rejected that. Instead, the bill would give companies one year or until July 2010, whichever comes first.
The July 2010 date is the deadline established by the Federal Reserve last December to implement changes to curb what Chairman Ben Bernanke called unfair and deceptive practices.
Banks, citing the need for time to develop software, train staff and work with vendors on new printing procedures, say they can't implement these changes overnight.
Maloney's bill largely reflects the Fed's rules but a bill introduced by the Senate Banking Committee Chairman Christopher Dodd has been hailed by consumer groups because it would forbid credit card companies from unilaterally raising interest rates at any time for any reason.
Dodd's tougher bill narrowly passed his own Senate Banking Committee, 12-11.
But some aides and experts say that Dodd, a Connecticut Democrat in the mist of a tough reelection battle, could make last-minute changes to try and win 60 votes for his bill.
Meanwhile, President Barack Obama's meeting with top bankers on Thursday will spotlight the issue.
The meeting is remarkable because it shows the increased awareness of what credit card products mean to Americans and how dangerous they can be, said Nick Bourke, manager of a credit card study at the Pew Charitable Trusts, a nonprofit group.